Lending Standards: Are They Actually Loosening?

In a recent story on MSN Money titled, Mortgage Borrowing Is Getting Easier, it was revealed that:

“Credit is not raining down on would-be borrowers, but it will be a bit more accessible this year.”

The article bases it findings on the Federal Reserve’s January Survey of Loan Officers. Dan Greene of the Daily Mortgage Report addresses the survey:

“The Q4 2012 survey marks the ninth straight survey in which fewer than 10% of banks tightened standards. Many more are loosening instead. It’s a good sign for the 2013 home purchase market, which has shown strong buyer demand and rising home prices. Despite what you may hear from friends and neighbors, the nation’s banks are no longer tightening their respective mortgage lending standards.”

In the article, Cara Hawkins, a production manager at Ameripro Fundingalso weighed in on the subject:

“There are more players in the mortgage buying ‘game’ than in past years, which opens the door to looser credit standards because the appetite for loans on the secondary market is higher. While it is still fairly black and white when it comes to mortgage qualification, I am seeing an increase in more approvable loans than in past years because of the market opening up.”

And a recently released report from FICO/PRMIA, US Consumer Credit Risk Trends and Expectations showed:

Expectations among bank risk professionals for the relaxation of lending standards increased sharply, rising from 12.1 to 19.9 percent

Why Are Lending Standards Easing?

The FICO/PRMIA report revealed two reasons for the industry’s current comfort with the housing market.

1. 83.7% believe that the level of mortgage delinquencies will decrease or stay the same, a significant improvement over last quarter.
2. 70.8% feel that home prices were rising at a sustainable pace.

The Niche Report also covered the FICO/PRMIA report explaining:

“One out of five bank risk professionals now expect the approval criteria for loans to become less stringent, the third highest level ever registered for looser lending standards in the three year history of the FICO survey.”

What Will This Mean for the Real Estate Market?

Dr. Andrew Jennings, chief analytics officer at FICO and head of FICO Labs, said it best:

“The latest survey results, combined with data that indicates the real estate market is improving in many regions, paint a positive picture for a sector of the economy that has been slow to join the recovery. Mortgage lenders have been understandably guarded over the past five years. The improvement in their sentiment should be welcome news, and I wouldn’t be surprised to see lenders cautiously expanding their mortgage and home equity lending businesses.”